AI Optics Boom: Coherent Leads Laser Supply Surge

AI Optics Boom: Coherent Leads Laser Supply Surge

The world of Artificial Intelligence (AI) is experiencing a massive surge in demand for specialized components, particularly in the area of AI infrastructure. Experts point to a significant opportunity in optical transceivers, the devices that send and receive data using light. This technology is crucial for connecting the powerful computers that drive AI. While current adoption of these optical solutions is less than 1%, projections suggest it could reach 36% by 2030, signaling a potentially huge market.

Coherent Emerges as a Key Player in AI Infrastructure

Among the companies positioned to benefit from this trend, Coherent (COHR) is highlighted as a leading player. The company specializes in making lasers, which are a critical bottleneck in the production of these advanced optical components. The demand for lasers used in AI infrastructure, specifically CW lasers and CML lasers, is so high that the industry’s current production capacity is estimated to be around $15 billion, which is seen as severely constrained.

Equity research analyst Mike points to Coherent’s strong position in this laser market. He believes the company is perhaps the single best-positioned entity in AI infrastructure due to its ability to supply these essential lasers. These lasers are vital for transceivers and future co-packaged optics, which will network AI systems together. The market’s current capacity limitations suggest that Coherent could see increased demand and potentially higher targets for its stock.

Strong Growth Projections for Optical Market

The penetration of optical technology in the broader market is expected to grow significantly. Estimates suggest that by 2027, about 5% of the market could be using these advanced optical solutions. Looking further ahead to 2030, the opportunity is projected to reach between $19 billion and $20 billion. By 2035, the market for optical components could approach a staggering $90 billion to $100 billion.

Coherent’s financial outlook appears robust based on these trends. While current earnings per share might be around $1 in 2026, forecasts suggest earnings could exceed $6 per share by 2028. Some projections even anticipate earnings reaching $10 per share in the following year, with potential for $15 per share in the years after that. This suggests a significant growth runway for the company.

What Investors Should Know

The explosive growth expected in AI infrastructure is creating significant opportunities. Companies like Coherent, which address critical supply chain bottlenecks such as laser production, are drawing significant investor attention. While Coherent has already seen substantial gains, its role in providing the foundational laser technology for AI’s optical future suggests continued potential.

For investors, understanding the difference between the memory bottleneck and the emerging laser bottleneck in AI is crucial. Coherent’s ability to manufacture these lasers ahead of demand and ramp up production is a key factor driving its current favor. The June quarter is anticipated to be a significant indicator of this momentum.

Other Players and the Future of Connectivity

While Coherent is a prominent name, other companies are also exploring opportunities in the AI space. One such company mentioned is Lumentum (LITE), though it may not be as deeply involved in the specific laser technology that is currently driving Coherent’s advantage. Another smaller company, Applied Optoelectronics (AAOI), is also noted. The analyst holds a profit-taking position in AAOI due to its volatile nature but doesn’t see it as a negative reflection on the company’s potential, suggesting it could double from its current price.

The discussion also touched upon the long-term role of copper versus optical technology. While copper has served well, optical solutions are expected to become dominant for AI data transfer over the next five to ten years. However, copper is still expected to have a strong two to three-year run, and companies like NVIDIA have stated a need for copper alongside optical solutions in the coming years. This suggests a transitional period where both technologies will coexist, but the future for high-speed data in AI clearly points towards optics.

The market’s focus is shifting towards the fundamental components that power AI, and companies like Coherent, by solving the laser bottleneck, are emerging as critical infrastructure providers in this rapidly evolving technological landscape.

Source: This is the SINGLE BEST company in AI infrastructure, expert reveals (YouTube)